High end hit hard in retail’s post-election worry

NEW YORK (MarketWatch) — Concerns about the European debt crisis and pending fiscal cliff on consumers’ psyche and spending sent retail stocks lower along with the broader market Wednesday, with Tiffany & Co. among upscale chains selling off.

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Macy’s Inc.
M, -0.39%
parent of Bloomingdale’s, dropped 1% even after it reported better fiscal third-quarter results than expected. The S&P Retail Index was down 1.4%.

Sector firms with European exposure also didn’t fare much better either, after European Central Bank President Mario Draghi said the region’s debt crisis is starting to hurt even its largest economy, German

“There’s a deep fear that the U.S. economy will tip into recession” if the United States goes over the fiscal cliff and sets in motion a bundle of spending cuts and tax hikes next year, which could cut U.S. economic growth by one to two percentage points, said Ken Perkins of Retail Metrics in an interview. “That’ll cut consumer spending. It’s going to affect a broad spectrum of retailers if Bush tax cuts for everyone are taken away.

“Everyone is going to see fewer dollars,” he added. “It’ll affect the high end more disproportionately because of the looming higher tax rates on higher net-worth individuals.”

‘It’s going to affect a broad spectrum of retailers if Bush tax cuts for everyone are taken away. It’ll affect the high end more disproportionately because of the looming higher tax rates on higher net-worth individuals.’
Ken Perkins, Retail Metrics

Fears over investors’ appetite in stocks and how the market will perform without the resolution of the fiscal cliff is another overhang for so-called luxury stocks. Saks Chief Executive Steve Sadove, for instance, has said that there’s a high correlation between the performance of the equity markets and the penchant of luxury consumers’ willingness to spend.

Adding to the concerns about the high end, the European crisis also could affect U.S.-based luxury chains more because retailers such as Tiffany and Saks have solid business from tourist spending, according to Perkins.

To be sure, those issues aren’t likely going to take too much cheer out of the upcoming holiday season, at least not just yet, he said. The sector in general has fared better than the other market segments this year, as an improvement in home prices and stock prices have lifted consumer spending.

Wall Street’s average third-quarter profit estimate for 120 retailers tracked by Retail Metrics is signaling an 8.7% increase in the third quarter, compared with a decline of 0.5% for the S&P 500 components, Perkins calculated.

Among 41 retailers that have reported their results so far, third-quarter retail sales also have showed strong consumer demand, with revenue among those chains up an average of 7.8% — exceeding the long-term industry average of a 7.4% increase and a 4.4% increase in the second quarter, he added.

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Analysts are looking at an even better per-share profit performance of a 13.4% increase for the 120 retailers in the holiday fourth quarter.

“Retailers will continue to surprise,” Perkins said, cautioning that consumers may start to pare back somewhat if the fiscal-cliff situation still isn’t resolved by Christmas. “I don’t see any major [holiday-season] impact.”

Separately, trade group National Retail Federation said that after the election, retailers want to see reforms and resolutions in areas such as health care and sales-tax fairness to put physical chains and online retailers on a level playing field.

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